DISH TV INDIA: A RIVETTING PERFORMANCE
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Though DishTV India had consistently posted losses from its inception to recent times due to huge investments made in setting up its infrastructure and reach, its recent financial turnaround reads like a fairy tale success story
Related to the advent of this media of entertainment, in 2003, when Dish TV India (DishTV) launched India’s first direct-to-home (DTH) service, not many people were aware about this technology and how it would change their lives completely. Now, DishTV is Asia’s largest DTH service provider. For such a company to set up operations, the initial investment was of course very high and that too without returns. Therefore, DishTV had continued to incur heavy losses since its inception till the last financial year. However, the company has now registered profitability during the financial year 2015 on a full year basis as well as during the last two successive quarters i.e. Q4 FY15 and Q1 FY16. Hence the company has attracted considerable amount of attention in recent times. This has prompted us to carry out an analysis of the company to find out how its growth prospects will pan out in the future.
The Business
DishTV has on its platform more than 496 channels and services including 22 audio channels and over 43 HD (high-definition) channels. It has a vast distribution network of over 1,685 distributors and over 2,01,300 dealers that span across 8,929 cities and towns across India. Dish TV customers are serviced by 13 round-the-clock call centres catering to 11 different languages to take care of subscriber requirements at any point of time. The company offers 100 per cent prepaid services and its primary earnings are in the form of these subscriptions. The major expense for DishTV is programming and other costs amounting to 29 per cent of the total expenditure.
However, as the company’s subscriber base is increasing, programming and other costs as a percentage of subscription revenue have considerably decreased over the past few years from 71 per cent in FY08 to 31 per cent in FY15. The second major cost for the company is selling and distribution expense which constitutes 15 per cent of the total expenditure. Further, DishTV also pays 10 per cent of its gross revenue as mandatory license fee as per the guidelines of the Ministry of Information and Broadcasting (MIB). However, the Telecom Regulatory Authority of India (TRAI) has recently recommended reducing the license fee to 8 per cent. Another positive development for the company will be the subsuming of Entertainment Tax and Service Tax post the rollout of Goods and Service Tax (GST).
In a recent board meeting, DishTV decided to shift its entire DTH-related infrastructure and service business to Dish Infra Services (DISPL). Effectively, all the consumer premise equipment (CPE) will be owned and leased to the customers by DISPL, while DishTV will control the content and broadcasting segment. DISPL’s business includes set-top boxes, dish antennas and related services. Further, DishTV will be able to manufacture set-top boxes (STBs) through its subsidiary Dish Infra Services domestically. DISPL is currently a loss-making firm.
A Technological Advantage
DishTV uses the NSS-6 satellite platform which is unique in the Indian subcontinent owing to its automated power control and contoured beam which makes it suitable for use in ITU-K and N-rain zones ideally suited for India’s tropical climate. The satellite has competitive advantage to provide durable service to its customers. DishTV has also acquired transponders on the Asiasat 5 platform and recently on the SES-8 platform, which has helped increase its total bandwidth capacity to 720 MHZ, the largest held by any DTH player in the country. It has 16 transponders, the highest number among its competitors.
Expectation of ARPU Expansion
DishTV has grown its subscriber base to 13.3 million at the end of June 2015. This growth was due to 26.42 per cent CAGR from FY08 to FY15. Interestingly, the company has been aggressively increasing its prices during the last five quarters, pushing the level up in October and then again in February. Further, the company has implemented differential pricing from March onwards, which was rolled it out again in May. The result of this exercise is that its average revenue per user (ARPU) has displayed an increasing trend over the last five quarters and increased from Rs 170 in Q1 FY15 to Rs 180 in Q1 FY16.
Further, with the increasing penetration of HD television sets, the number of subscribers upgrading to HD is on the rise, especially in metro cities. Currently, the ARPU from HD subscriber stands at a healthy Rs 434. HD subscriber additions last year was particularly good for the company. Driven by the World Cup last quarter, it is almost 22 per cent on net additions which is up from about 17-18 per cent in the earlier quarters. We are confident that pack price hikes, higher HD uptake, as well as industry level developments such as initiation of packaging in cable will be key contributors to its ARPU expansion going forward.
Subscribers Trigger Growth
Analog TV households are mandated to be digitized under the Digital Addressable System (DAS) as per the government’s notification. The MIB released a list of urban areas under Phase III of DAS with a deadline of December 2015. There will be around 38.78 million urban TV households which will be covered under this new digitization programme. Tamil Nadu will see the largest expansion of digitization with over 6 million TV households targeted under the new phase.
Considering DAS Phase III and IV, the company recently launched the Zing brand in seven states, which has now been introduced in Tamil Nadu also. It offers value for money with digital quality picture at cable prices and stereophonic sound. This brand was basically formulated and designed for such markets and the company has seen good response over the past 12 months. Today Zing is contributing almost 22 per cent of the net incremental addition and is a highly profitable product with higher margins than even the base brand Dish TV. Further, the deadline for DAS Phase IV is December 2016 and will cover the rest of the country with approximately 73 million TV households. Digital penetration in India is only 52 per cent, the lowest from among countries like Korea, Sri Lanka, Indonesia, Japan, New Zealand, Singapore, etc. DishTV, being a market leader with a vast distribution network, is expected to benefit the most from this ‘Digital India’ campaign.
Playing A Pioneering Role
DishTV is a part of one of India’s biggest media conglomerate, Zee Group. The promoter, Dr. Subhash Chandra, who is referred to as the ‘Media Moghul’ of India, revolutionized the Indian television industry by launching the country’s first satellite Hindi channel Zee TV in 1992 and later the first private news channel, Zee News. The Zee Network today has over 730 million viewers in 169 countries offering a rich bouquet of channels in general entertainment, sports, lifestyle, movies, English and regional genres and alternative lifestyles with both local and international presence. Even the other ventures of Dr. Chandra have been equally path-breaking, including Essel Propack, which is the largest speciality packaging company in the world, and Essel World, Asia’s largest amusement park. The vast experience of the promoter is helping DishTV get an edge in the industry.
Turnaround Financial Performance
FY15 was a satisfying year as the company’s single-minded devotion to being the leader in the DTH industry along with uncompromised financial discipline enabled it to reach a net profitability milestone much ahead of its peers. The company registered a strong Q4 FY15 and has turned PAT positive both at the quarterly level as well as for the full year 2015. DishTV recorded a net profit of Rs 35 crore for the quarter compared to Rs 149 crore loss during the same quarter last fiscal. The net profit for the full year 2015 was Rs 3.1 crore compared to a loss of Rs 157.6 crore in FY14.
Similarly, DishTV registered a net profit of Rs 54.2 crore in Q1 FY16 for the second consecutive quarter against a net loss of Rs 14.97 crore in Q1 FY15. The company’s revenue increased by 19.2 per cent to Rs 736.68 crore in Q1 FY16 compared to the same period in the previous financial year. It added 3.90 lakh net subscribers during the June 2015 quarter. Its EBITDA boosted by 51.32 per cent to Rs 236.84 crore in Q1 FY16 compared to the same period in the previous fiscal year. Further, its EBITDA margins expanded by 682 basis points to 32.15 per cent in Q1 FY16 on a yearly basis.
Considering segment-wise revenue, DishTV earned 68.37 per cent from the DTH services’ segment and the remaining 31.2 per cent from infrastructural support services during the June 2015 quarter. The company earned around USD 23 million in revenue from Sri Lanka with highest dominance in the country, claiming a market share of 72 per cent as of June 2015. It has ARPU of USD 7 in Sri Lanka and was able to achieve this because of zero subsidy on consumer premises equipment (CPE).
Conclusion
DishTV witnessed 14.13 per cent CAGR of its total income over the period of FY11 to FY15. Interestingly, its EBITDA increased over the years with CAGR of 25.01 per cent during the same period. With an increasing subscriber base, the company has displayed increasing profitability and consistent growth since its inception. With a strong financial performance during straight consecutive quarters, the foreign institutional investors’ (FIIs) holdings expanded by 581 basis points to 18.63 per cent and domestic institutional investors’ (DIIs) holdings expanded by 27 basis points to 4 per cent during the June 2015 quarter. Over the last one year, the FIIs’ and DIIs’ holdings in the company expanded by 752 and 168 basis points. The increasing institutional holdings in the company lead to confidence about the company’s future growth path. We therefore recommend buying this scrip.